The blockade of the Strait of Hormuz is driving up jet fuel prices. In the meantime, the first routes are being canceled due to a kerosene shortage – and tickets could also become more expensive.
Sometimes things can happen quickly. Lufthansa assured on Thursday afternoon that there was no kerosene shortage at its hubs, including Frankfurt. The airline stated that 80 percent of its kerosene needs for the current year and 40 percent for the coming year were secured, adding that this level of security was better than that of most competitors.
Less than two hours later, the company released this announcement: Due to significantly increased kerosene prices, the 27 aircraft of its subsidiary Cityline are being permanently taken out of operation. This effectively means the end of the airline, which primarily operated feeder flights to Frankfurt and Munich. While the two statements do not contradict each other, they illustrate how rapidly the situation surrounding jet fuel is escalating.
The Iran war and the blockade of the Strait of Hormuz are having a massive impact on air traffic. Jet fuel prices have skyrocketed, and airline stock prices have plummeted. The International Energy Agency (IEA) has already warned that several European countries “could face a developing kerosene shortage in the next six weeks.” Ryanair is not ruling out flight cancellations due to high kerosene costs, and the Australian airline Qantas has already canceled domestic flights. Air ticket prices are also rising accordingly. On Wednesday, a fire at an Australian oil refinery added to the problems. No one knows how serious it will actually get – airlines have to fly by sight, so to speak.
Katherina Reiche: No “Concern about Shortages”
In Germany, dependence on imports is less than in Asia, for example, and refineries also produce kerosene domestically. “We do not have a kerosene shortage here in Germany,” said Economic Minister Katherina Reiche (CDU) on Thursday in Berlin. She referred, among other things, to the release of state oil reserves. In this context, the release of kerosene had also been requested, “but not in excessive measures.” She could not “confirm concerns about shortages” – for the moment.
Because the longer the blockade lasts, the more serious the situation becomes. About a fifth of global oil and liquefied gas transport passes through the Strait of Hormuz. According to the IEA, Europe imports about 30 percent of its aviation fuel needs, with about three-quarters of that coming from the Middle East. The blockade of the strait and the refineries destroyed by the war mean that less and less jet fuel is coming into the world. Expanding domestic capacities is hardly possible. There are fewer and fewer refineries in Europe. Those that are still operating are often at their capacity limit.
“Our kerosene suppliers are changing their forecast periods and are no longer willing to provide outlooks beyond one month,” Lufthansa board member Grazia Vittadini, responsible for procurement, told Reuters news agency. According to Lufthansa, kerosene prices have doubled since the outbreak of the Iran war.
The largest German airline, which celebrated its 100th birthday yesterday, is now reacting with an emergency plan by phasing out older aircraft. “On the one hand, particularly inefficient aircraft are being prematurely retired from flight operations. On the other hand, the saved amount of kerosene reduces the unsecured portion of the group’s fuel demand,” the company stated. Lufthansa CEO Carsten Spohr reiterated in an interview with the “Frankfurter Allgemeine Zeitung” the scenario of grounding up to 40 older, high-consumption aircraft if necessary.
Other airlines are also being massively affected by this problem. The British low-cost airline Easyjet announced on Thursday that it expects a significantly higher loss due to kerosene prices. Its stock price plummeted by about seven percent after the announcement.
Airlines Increase Ticket Prices
This also has an impact on ticket prices. Lufthansa has already implemented price increases, and the low-cost airline Ryanair also indicated in talks with the “Redaktionsnetzwerk Deutschland” that it would not rule out short-term price increases. Even flight cancellations are possible.
Prognoses differ on when supply bottlenecks will actually occur. The European umbrella organization of airport operators expects them to start in early May. According to the IEA, supply depends on how well Europe can replace deliveries from the Middle East. Claudio Galimberto, an economist at the analysis firm Rystad Energy, told AFP that the situation could become “systemic in the next three to four weeks.”
Currently, there are no indications of fuel shortages, a spokesperson for the EU Commission said on Tuesday. However, she conceded that “supply bottlenecks, particularly for aviation fuels, could occur in the near future.” According to Reuters, the Commission is already working on an emergency plan. This would involve inventorying refinery capacities in Europe and ensuring their full utilization. The industry association Airlines for Europe also calls for joint procurement of kerosene.
